Cancelling your paid up home loan

Private Property South Africa
Sarah-Jane Meyer

Cancelling your home loan requires proper planning - here's how to do it..

After decades of paying monthly bond instalments on your home, you may be surprised to find that the title deed isn’t automatically issued to you after your final instalment. Before this can happen you still need to cancel your bond, and this process involves the bank, a bond cancellation attorney and the deeds office.

It’s important to note that you will be liable for the bond cancellation fee payable to the attorney to cancel your bond, even if the home loan account is paid up in full. And, even though your bond has been settled, the bank will keep your account open unless specifically instructed to close the account. While the account is open, the bank will debit a monthly service fee to the account.

The process

  • You instruct the bank to cancel the bond.
  • The bank will calculate the cancellation figures and appoint a bond cancellation attorney.
  • The bond cancellation attorney will contact you within a few days of receiving the cancellation figures.
  • You will sign the cancellation documents with the attorney.
  • You will pay the cancellation fees.
  • The attorney will attend to the bond cancellation at the deeds office.
  • The bank will close your account, if you have elected not to keep it open.
  • The bank will release to you the property’s title deed it holds as well as any other security documentation.
  • The bank refunds any excess funds in the home loan account.

Early settlement

If you are settling the outstanding amount before the end of the loan term, you need to give the bank a written request to cancel your home loan. Banks require that you give 90 days’ notice of early settlement to avoid paying penalty interest.

The bank will instruct the cancellation attorney to attend to the cancellation, giving the attorney the exact cancellation figure, which includes:

  • The current outstanding balance on the home loan account.
  • Interest accrued up to the day the notice was given.
  • One month’s instalment.
  • Three months’ insurance and life assurance premiums.
  • Three months’ service fees.
  • All the legal costs, interest and/or early settlement charges.

Any excess funds received after the bond has been cancelled will be refunded to a nominated account, such as a transactional account or new home loan account, if you are buying another property, for example.

Insurance

If your monthly premium for home owners comprehensive (HOC) insurance is linked to your home loan account you need to change the debit order to another account when you cancel your bond. If you don’t do this, your home insurance could automatically be cancelled when your bond is cancelled.

It’s important to ensure that your HOC premiums are up to date even once you have settled your bond. If you miss a payment, your cover will be cancelled and your property will no longer be insured. This means that you will have to foot the bill in the event of any damage to your property.

Access facility

One of the advantages of keeping your home loan account open after you have paid it off is that you can access all the funds you have paid on your bond, up to the original amount.

The interest charged on a home loan is usually lower than interest on other forms of debt, such as credit cards, short-term loans or vehicle finance. Keeping your home loan facility open allows you access to these funds at a later stage, for instance, to finance a vehicle or studies.

Even if your home loan doesn’t already have an access facility, your bank may allow you to apply for one simultaneously with settling the outstanding amount, and keep the account open to access the funds when needed. However, bear in mind that if you elect not to close the account the bank will retain the title deed. The bank will also charge a monthly service fee to keep the account open.

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